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P H
Jul 15,2016 09:56:40
Govt to increase royalty tariff for mining to boost non-tax rev. Details -Bronze, the tariff will be increased to 4% from 3.75%, gold will see the biggest increase to 3.75% from 1%. Royalty for silver also up to 3.25% from 1% and nickel will be increased to 2% from 0.95% . 

$MDKA $PSAB $ANTM

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P H
Jul 11,2016 13:15:30
Indonesia Gold sector: Brexit boost

- Safe-haven status = Gold volumes to highest levels since April
Gold’s function as a safe haven asset amid increased uncertainties has recently re-emerged following the UK’s decision to leave the EU, allowing gold prices to rise to USD1,323/toz, up 9% from its ytd average, with trading volumes up to 574,241 toz in June 2016, way above ytd average of 44,245 toz (exhibit 4). Note that in 1Q16, gold price had already closed at USD1,233/toz, up 17% q-q and was the best performing major asset class (exhibit 10), with gold demand having jumped 21% y-y to 1,289mt, the highest 1Q volume since 2013. This was supported by acceleration in gold investments (+122% y-y) despite slowing central bank buying (-3% y-y) and lack of jewellery demand (-19% y-y). Looking ahead, we expect gold demand to remain well supported due to Brexit.

- UK likely to increase proportion of its gold to total reserves
At this stage, our economist believes that GBP will have the lowest weighting in the IMF’s special drawing rights composition (SDR) post CNY having entered the list in October 2016 (exhibit 8), limiting UK’s ability to increase the country’s debt through quantitative easing (the IMF estimates UK’s 2015 net debt to GDP of 81%, US: 81%, Japan: 126%). Therefore, we expect the Bank of England (BoE) to increase its allocation to gold as a safeguard given increased uncertainties post Brexit. Currently, gold accounts for 9% of the UK’s total reserves. After comparing the UK’s gold holdings to its peers based on country’s total reserves (exhibit 6) we believe, the UK’s upcoming gold purchases could range from 318mt to 1,073mt if the UK were to decide to hedge current increasing uncertainty through higher gold reserves (exhibit 5).   

Outlook: Revise 2016 gold price assumption to USD1,300/toz   
Possibility of central banks deciding to increase gold purchases following the Brexit vote, coupled with improved outlook on India’s demand due to new tax structure and upcoming wedding season, suggests increasingly greater gold demand in 2016. Furthermore, China’s May gold imports jumped 68% m-m to its highest level in 2016 to 115mt, while India’s gold bar imports spiked 46% m-m to around 50mt. Based on aforementioned factors, we revise up our 2016 average gold price assumption from USD1,100/toz to USD1,300/toz (current: USD1,360/toz; ytd average: USD1,219), implying USD1,377/toz gold average price for the rest of 2016.   

Recommendation: PSAB as our precious metal top-pick
Stock wise, PSAB is our top pick as the company is already in producing phase with expected gross margin expansion to 54% from 52% following gold price appreciation. On PSAB, we cut our earnings forecasts (exhibit 13) due to lower production volumes, but the stock remains a BUY, and we increase our DCF-based 12M TP to IDR413 (from IDR280) on better price outlook. We also reiterate BUY on gold exploration companies UNTR and MDKA on better gold price outlook. For ANTM, we raise our earnings forecasts on higher gold earnings contribution and expect additional 60mt gold refinery revenue derived from Freeport Indonesia’s anode slime project in Gresik starting 2018. As such, we upgrade ANTM to HOLD (from Reduce) with a new TP of IDR680 (from IDR207). Risk to our sector call is lower gold prices.

$PSAB $UNTR $MDKA $ANTM
Bull
P H
Jul 24,2015 00:00:56

Merdeka Copper Gold (MDKA): Promising

Proven mining track record with support from the local community
Owned by the Saratoga Group, which has a strong reputation and proven track record in the mining business, Merdeka Copper Gold (“MDKA”) launched an initial public offering (IPO) and was listed on 19 June 2015. MDKA was the first to utilize the Stock Exchange’s new regulation to list as a greenfield mining company. It plans to expand and develop its mining site in Tujuh Bukit project, Banyuwangi, East Java. The 5k ha of IUP production area (exhibit 12) has 898k oz of proven gold reserves (exhibit 15). Management projects production commencement by 2017, with a per annum capacity of 90k oz/gold. Over the next three years, we expect MDKA to generate attractive earnings growth, backed by its experienced management team, solid reserves and better gold price outlook as the global economy recovers. Note that a 6.6% ownership stake for the local Banyuwangi government (exhibit 2) will likely ensure positive support from the local community.

Production support from strong reserves and solid resources
Based on CSA Global’s 2012 Joint Ore Reserve Committee (JORC) Report (18 March 2014), Tujuh Bukit Project has proven reserves of 898k oz of gold and 21.6mn oz of silver in its oxide layers. Separately, based on H&SC JORC (15 October 2014), the Tujuh Bukit Project is estimated to have 28.1mn oz of gold and 19.3bn lbs of copper resources. We expect these strong reserves and resource base to support MDKA’s production sustainability ahead. In order to extract the reserves and resources, MDKA plans to construct a mining infrastructure and supporting facility over the next 20-month period.

Low production costs through efficient production method
We expect MDKA to book relatively low cash production cost of around USD451/oz on the back of its efficient heap-leach process, which requires lower initial investment (2015: USD51mn; 2016: USD76mn), less operating costs and is more environmentally-friendly compared to other methods. Additionally, the Tujuh Bukit Project will be equipped with a conveyor belt to deliver oxide ores to the stockpile (exhibit 21), before being transported approximately 3.5km to MDKA’s mini smelter. Thus, going forward, we expect MDKA’s earnings to be resilient and generate strong margin improvements, helped also by higher projected gold prices.

Promising greenfield mining company with 10% upside potential
In the next two years, MDKA plans to build its gold production facilities, using USD51mn capex in 2015F and USD76mn in 2016F. To fund the facilities, MDKA raised USD63mn through IPO, of which 50% are currently utilized for mining development. We expect initial production of 65k oz in 2017, before rising to 89k oz in 2018 (exhibits 22). Based on our conservative gold price estimate of USD1,200/oz combined with its efficient cost structure, we expect MDKA’s 2017 net profit to reach USD16.7mn, further increasing to USD47.5mn in 2018. We use SOTP-based DCF to derive our IDR2,200 TP, of which 65% is attributable to porphyry resources with 35% stemming from DCF valuation. With 10% upside potential from current price, we initiate MDKA with a BUY rating. Risk: slower-than-expected project development.

$MDKA
Bear
Quotes delayed, except where indicated otherwise.
MDKA
2,000.00 20.00 (0.99%)
Merdeka Copper Gold Tbk.
Last Update 21:47:50